Euro Gains rose in European trade on Tuesday against a basket of major rivals, resuming gains and moving once again near four-month highs against the dollar. This movement is driven by hopes of reducing the interest rate gap between the EU and the US.
Interest Rate Outlook
The European Central Bank (ECB) is expected to refrain from a rate cut at this week’s meeting. Meanwhile, the Federal Reserve is increasingly likely to cut rates both in September and November
following less aggressive remarks by Fed Chair Jerome Powell.
Current Prices
The EUR/USD pair rose 0.1% today to $1.0899, with a session high at $1.0884. On Monday, the pair lost 0.1%, marking its first loss in four days, away from the four-month high of $1.0922. The euro had been hurt by rising risk aversion after a failed assassination attempt on ex-US President Donald Trump.
European Central Bank (ECB)
Later today, the ECB will hold a policy meeting to discuss economic conditions and appropriate rate decisions
with the outcomes expected to issued tomorrow. Most analysts anticipate no changes in the rates. The ECB cut rates last June for the first time since 2016, after a long period of rate hikes
but has since refrained from further moves.
US Rates
In a recent speech in Washington, Fed Chair Jerome Powell indicated that the latest consumer price data supports the view that inflation is returning to the 2% target sustainably
with three consecutive months of better-than-expected results. Following his remarks, the odds of a 0.25% rate cut by the Federal Reserve in September have risen to 100%
according to the Fedwatch tool
with a similar likelihood for a rate cut in November.
Rate Gap
The current interest rate gap between Europe and the US stands at 125 basis points in favor of the US. This gap expected to shrink in September, which could boost the euro against the dollar.
Conclusion
The euro’s gains are driven by the anticipation of changes in the interest rate differential between the ECB and the Federal Reserve. As the ECB holds rates steady and the Fed moves towards potential cuts
the narrowing gap expected to favor the euro, supporting its rise against the dollar.
FAQs
-
Why did the euro rise against the dollar? The Euro Gains rose due to expectations that the interest rate gap between the EU and the US will narrow
favoring the euro. -
What are the current EUR/USD price levels? The EUR/USD pair rose 0.1% today to $1.0899
with a session high at $1.0884. - What is the ECB expected to do at its meeting? The ECB expected to refrain from cutting rates at this week’s meeting.
- What did Fed Chair Jerome Powell say about inflation? Powell indicated that the latest consumer price data bolsters confidence that inflation is sustainably returning to the 2% target.
- What is the current interest rate gap between Europe and the US? The interest rate gap currently stands at 125 basis points in favor of the US but expected to shrink in September.